Saturday, January 5, 2008

Netflix does it again

Netflix subscribers will soon be able to seal those red envelopes for good and opt to download films straight to their high-definition TVs. The movie rental company is joining forces with LG Electronics to develop a set-top box by the second half of 2008 that will allow customers to stream movies instantly.

The company's Wednesday announcement pools them in with several other media giants attempting to seize the emerging market, including Apple and Amazon.com. However, Netflix Inc., as the world's largest online movie rental service with more than 90,000 titles on DVD, may be in a better position to succeed where others have floundered. Last100, a digital technology news and review website, reports:

Apple is expected to announce … a video rental service for iTunes, but the only known studio participants are Fox and Disney, hardly the catalog Netflix could offer. Cable companies, telcos, and anybody else selling video-on-demand services should also be concerned. Why spend $4 to rent a movie when you already subscribe to a Netflix plan, which will offer viewers many more choices?

Most of Netflix's roughly seven million customers rely on mail carriers to deliver and return their rentals over several days, making streamed video more attractive to many consumers. Breaking into the straight-to-TV market can help lift the burden of snail mail, reports The New York Times:

The move could help transform Netflix from a successful company with a cumbersome dependence on physical media and the Postal Service into an important player in a rapidly emerging digital media landscape.

Increasingly easy access to high quality videos on and through the Web may further curtail DVD sales, reports MarketWatch, a business and finance news website by Dow Jones & Company.

Among the possible consequences of the Netflix-LG alliance is that some consumers will see one less reason to buy DVDs. In the first six months of 2007, DVD sales dropped 12.5% from the year-earlier period…

Investors have shown waning faith in the longevity of a company thus far reliant upon a mail-in organizational structure, even though Netflix invested more than $40 million towards the development of its current streaming service during the last year. The service provides instant access via PC to over 6,000 titles. According to The Associated Press:

The financial commitment hasn't been enough to convince many investors that Netflix will be able to survive a widely anticipated shift that will turn DVDs into an afterthought as digital downloading proliferates. The persisting worries are one of the biggest reasons that Netflix's stock price remains roughly 30 percent below its highs of four years ago, even though the company has become more profitable while signing up millions of new subscribers since then.

Reed Hastings, CEO of Netflix, spoke of the LG set-top box as just the first of many such joint efforts by Netflix with other companies to make its content available through various platforms. The New York Times reports:

We want to be integrated on every Internet-connected device, game system, high-definition DVD player and dedicated Internet set-top box," [Reed] said. "Eventually, as TVs have wireless connectivity built into them, we'll integrate right into television.

The move is not without its detractors. According to Techdirt, a technology news website, a set-top box that works only with Netflix will limit consumer choices and could lead to a standards battle between competing companies similar to what has been seen with HD DVDs. The Techdirt piece continues:

If there were a standard that others could plug into, then it would encourage more people to upgrade. However, if the competition is between a "Netflix" and some other device, it may make people wait to see how the market really shake out.